Impact in Bangladesh’s Economy After the Budget of Export Import

Assignment On Impact in Bangladesh’s economy after the Budget of Export Import on Food and Garments Course Name: Financial Management Course Code: Bus-302 Section- 01 Submitted To Sumaiya Zaman Lecturer & Co- Ordinator ULAB School of Business Submitted By Tamim Hossain Turjo Id. 092011100 Md. Masud Rana Id. 092011084 Sony Saha Id. 092011090 Mst. Tazmina Afrin Nipu Id. 092011096 Atiker Nesa Chowdhury Id. 093011101 University of Liberal Arts BangladeshDate Of Submission: 18-08-2011 INTRODUCTION The national budget of FY2011-12 has been announced at the midpoint of the present government’s five years occupancy, spoiled by challenges to maintain the balances and the achievement of the targets for which it was voted to power. The current situation of macroeconomic balances, particularly triggered by instability of prices and contractionary financial policies, may be further pressurized by the possibility of fiscal compress.These developments of maintaining the balances may p ut the government on the edge of achieving the target of growth, recovery from lethargic improvement in poverty improvement and the reversing the rising trend of inequality. The investment scenario is yet to take the desired path, particularly being underpinned by high interest rate, low FDI inflow, acute power crisis, poor governance, and political instability. The inflationary pressure has been mounting at a rising rate mostly through food inflation in the country.Furthermore, higher trade deficit and the stagnated remittance inflow are putting pressure on the balance of payment situation. The financial space squeeze has emerged by growing burden of financial support requirements especially to the power and energy sector driven by the government to finance the private generators and the global fuel price hike. The limitation of fiscal space might make it difficult for the government to seek remedy to refreshment required for revamping the economy.In addition to that, IMF’s loan with unsuitable conditionality might create severe pressure on the overall macroeconomic strength as well as attaining the targeted growth path. The government might face extraordinary challenges to reach the growth target as quoted in the budget document of FY2011-12 due to the lack of supporting base in the overall economy of Bangladesh. The fiscal space squeeze and IMFs conditions for accessing one billion dollar loan to Bangladesh might also cover the way for increasing different types of inequality; such as – geographical inequality, income inequality and social inequality in the country.Moreover, macroeconomic correlates will be further stressed due to the mounting public debt. The cost of public debt has turned out to be a major concern attributing to the rise in interest rate and a depreciating exchange rate. The government is facing difficulty in debt financing caused by the squeezing of financial space. It is necessary to mention here that if debt financing is to be met by borrowing from the central bank, it would create inflationary pressure; on the other hand, if it is met by borrowing from the commercial banks, there is a possibility of crowding out the private investment.Therefore, debt financing and its management is a critical issue for the present government that needs to be dealt skillfully. In the budget of FY2011-12, the government’s financial strategy should have emphasized the need for maintaining the overall macroeconomic stability as well as fiscal sustainability. Moreover, the government ought to boost the investment through infrastructural development in order to achieve the targeted growth as well as to eradicate poverty and inequality. Budget of 2009-2010 1. Slow down in export growth with some sectors in negative territory: The export growth during July-March period in 2009-2010 stood at 14. percent which was 12. 4 percent during the corresponding period of the year 2008. During this period, RMG sector registered a growth of 19. 9 percent of which the share of woven garments was 18. 4 percent and that of knitwear 21. 4 percent. Frozen foods on the other hand registered negative growth. 2. Export growth may decline to 12 percent: It is in this context that the export growth will moderate in the last quarter of year 2009-2010. As a result, there is a downward projection of export growth to 12 percent in the year 2009-2010. This was 15. 9 percent in the previous year. 3.Decline in import growth projected: About 80 percent of Bangladesh’s imports constitute essential commodities, a large part of which are raw and intermediate materials for industrial production. In the first nine months of the year 2009-2010, import growth registered a decline to 12. 4 percent from 23. 9 percent during the corresponding period of the year 2009-2010. This is attributable to the sudden fall of fuel price and the prices of other commodities. 4. Zero-rate tax will continue for major food items and fertilizer s: We have no alternatives to increasing agricultural production to attain food autarky.Our government has declared agriculture as the top priority sector. Proposal of continue with the zero tariff on imports of fertilizer, seeds and major food grains along with medicine and raw cotton. Proposal to withdraw VAT on the imports of raw materials to produce pesticides to keep pesticides easily available for farmers. To offer protection to the local dairy industry, propose to impose 5% regulatory duty in addition to 12% customs duty on milk powder imported in bulk. 5. Import of milk based food preparations (HS Code 1901. 90. 10) in bulk is subject to 20% supplementary duty.As there is no difference in duty structure between locally packed products and products packed outside, the local packaging industries are affected. Propose to withdraw 20% supplementary duty on the import of this item in bulk. Budget Of 2010-2011 1. Export: While export of commodities and services had shrunk by 20. 4 percent globally due to economic downturn in 2009, Bangladesh managed to achieve a 10. 3 percent growth in export. This is obviously a commendable achievement for Bangladesh. . Due to the global recession, export earnings have increased by only 1 percent during July- April of FY2009-10.It is to be noted that export earnings are on the rise since March 2010 and in April this has increased by 19 percent. Optimistic that this trend will continue in the remaining months of current financial year as well as in the coming fiscal year. 2. Import: Due to recession, prices of commodities in global market as well as volume of imports have declined. While imports shrank by 12 percent in the developed countries and by 8. 4 percent in the emerging and developing economies, import growth of Bangladesh stood at 4. 1 percent in 2008-09.In the first ten months i. e. up to April of FY2009-10, import expenditure has increased by 0. 8 percent compared to the corresponding period of the previous financ ial year. Import has, however, increased by 24. 9 percent on the basis of L/Cs opened during July-April period. The good news is that the import of capital machineries and raw materials has increased by 54 percent and 12. 5 percent respectively on the basis of L/C opened during this period which will have a positive impact on the economy in the near future. 3.With a view to keeping the prices within the reach of the general people. Propose to maintain the 0 percent customs duty rate on commodities like rice, wheat, onion, pulse. Considering the sudden exorbitant increase in the world price of milk powder. propose to reduce import duty from 12 percent to 5 percent and withdraw 5 percent regulatory duty on milk powder. 4. The specific rate of duty on raw sugar was withdrawn last year in response to the sudden price hike of sugar at the world market. However, due to a good crop this year, its world price has gone down.Therefore, to ensure higher revenue collection to meet government's developmental needs, propose to impose specific rate of duty on raw sugar and refined sugar at the rate of Tk. 2,000 and Tk. 4,000 per metric ton respectively. Budget Of 2011-2012 Indicators| Unit/Growth Rate| 2009-10(Real)| 2010-11(July-April)| 2010-11(Provisional)| 2011-12(Projected)| Export| Billion US$Growth (%)| 16. 2(4. 1)| 18. 2(40. 9)| 22. 4(38. 0)| 25. 7(14. 5)| Import| Billion US$Growth (%)| 23. 7(5. 5)| 27. 5(41. 4)| 31. 0(45. 0)| 35. 4(14. 0)| 1. Export: With the rebound in global trade, Bangladesh's export is growing increasingly.During the July-April period of FY 2010-11, our export stood at US$ 18. 2 billion which is 40. 9 percent higher over the same period of the last fiscal. Efforts are underway to explore new markets and diversify exportable commodities. It is expected that export will exceed US$22. 4 billion in the current fiscal and this trend will continue in the next fiscal year as well. 2. Import Global imports of goods and services have also bounced back fro m the negative growth in the aftermath of the recession In FY 009-10, our import payments posted a growth of 5. percent. During the July-April period of the current fiscal, import picked up and grew by 41. 4 percent Around 80 percent of our imports are essential industrial commodities On the basis of Letter of Credit settlement, over the July April period of the current fiscal, imports of capital machinery and industrial raw materials recorded a growth of 43. 1 and 49. 8 percent respectively Growth of imports of capital machinery and industrial raw materials reflects the robustness in investment and the momentum created in our economy. 3.In order to keep the price of commodities within the reach of the people, I propose to maintain zero rate of import duty on rice, pulse, wheat, sugar, edible oil, onion, fertilizer, seeds, life saving medicine and cotton. Comparison Between Budget 2009-2010 to 2010-2011 1. Export: We see in FY 2009-2010export growth stood 14. 5% . It is better than the year 2008. In 2009-2010 FY RMG sector registered 19. 9%. But Frozen Foods is in Negative Growth. In the FY 2010-2011 export growth is increased by 19% from March to November and it can be running for rest of this FY.So we can say that In FY 2010-2011 Bangladesh manage to increase their Export growth. It can be give an impact in our GDP. 2. Import: In 2009-2010 FY Import growth decline 12. 4% from 23. 4% in the first 9 month because of sudden fall of fuel price and other commodities. In FY 2009-2010 0% rate on import tax for major food grains and 0% rate on import tax for raw and refined Sugar because of high price of sugar. 12% custom duty on milk powder and 5% regulatory duty on milk powder. In FY 2009-2010 20% supplementary duty is withdraw for milk based food preparations.In FY 2010-2011 it remains 0% tax for food grains like rice, pulse etc. In this year govt. are agree to decrease the tax 12% to 5% in milk powder and withdraw the 5% regulatory duty on milk powder. Because o f the low price of sugar this year Govt. Includes 2000 tk tax for per metric ton raw sugar and 4000 tk tax for per metric ton refined sugar. Comparison Between Budget 2010-2011 to 2011-2012 1. Export: In the FY 2010-2011 export growth is increased by 19% from March to November and it can be running for rest of this FY. In FY 2010-2011 Bangladesh manage to increase their Export growth from the year 2009-2010.In FY 2011-2012 Govt. targeted to gain 14. 5% export growth but that is declining. It is expected that export will exceed US$22. 4 billion in the current fiscal and this trend will continue in the next fiscal year as well. 2. Import:- In FY 2010-2011 it remains 0% tax for food grains like rice, pulse etc. In this year govt. are agree to decrease the tax 12% to 5% in milk powder and withdraw the 5% regulatory duty on milk powder. Because of the low price of sugar this year Govt. Includes 2000 tk tax for per metric ton raw sugar and 4000 tk tax for per metric ton refined sugar.In t his FY 2011-2012 Govt. claim that they will picked up the import growth 41. 4% percent overall. 0% tax rate is in food grains. Tax on sugar is proposed to decreased by 0%. Impact on Our Economy Chart: GDP growth rate from 2009 to 2011 In the budget of 2011-12, the government has targeted 7 percent GDP growth rate. It took two decades for Bangladesh to achieve 6 percent GDP growth rate from 4 percent. Now the government aims to achieve another 2 percent growth rate within five years without any major changes in policy which seems to be improbable considering the previous growth path.Although Bangladesh is in an advantageous position in relation to world average growth and the growth of emerging and developing economies, it is lagging slightly behind in comparison to the Developing Asian economies. The real GDP growth in FY 2009-10 has been finally computed to be 6. 1 percent but it can be increase in that year if we export more of our frozen foods. According to the provisional estima te, in FY 2010-11, a real GDP growth of 6. 7 percent has been achieved. Considering the prospects and potential risks in the context of global and domestic economic perspectives, real GDP growth target for FY 2011-12 at 7 percent.GDP growth increase does not mean that absolutely our financial sector is good. Bank deposit rate is decreasing day by day because of high price of commodities. We import so many food items from outside of the country. RMG product export is always creating positive impact in our economy. It decreases our unemployment problem. It holds major part of our GDP. In RMG sector inflow is more than outflow but in food sector it totally reversed. Recommendation : GDP growth of any country is blessing for that country. Our Budget is always dreamy to fulfill. No govt. can fulfill their Oath. In our Country every people in govt. re corrupted. But our Finance Minister Mr. Abul Mal Abdul Muhit set an Expectation For GDP to 7%. Hope this Govt. can achieve it. Our countryà ¢â‚¬â„¢s food market is stuck by 4 or 5 people who make syndicate and our food price is increasing. Recently for this sugar price is increasing so high. So we can say we have to stop the syndicate to flexible our market. In RMG sector, the overall situation is good without employee’s satisfaction. So we need to develop employee’s satisfaction which will automatically increase production and export. Conclusion: The budget of FY 2011-2012 is very dreamy.Our finance minister is very dream loving person. He propose 1635. 89 billion taka’s budget but we cannot afford this budget. In the FY 2010-2011 our finance minister give a budget of 1321. 7 billion takas budget. We want the correct budget for our country for which we can improve our country’s economic condition. We have to change by ourselves. We have to inspired by other country who are developing day by day. We have to improve our export and import sector. Because this sector is mostly responsible for in crease our GDP. References 1. Mof. gov. bd 2. www. unnayan. org 3. Books of Budget Published By NBR